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Last week, just as a couple of bank analysts suggested that central banks may use the bitcoin for reserves and that a fair value is higher than prevailing prices, China banned its banks from trading the digital currency. Over the weekend, Baidu (NASDAQ:BIDU), China's biggest internet portal, reversed itself and indicated it would no longer facilitate the use of bitcoins.

Separately, China has embraced another currency: The Russian ruble. In the border city of Suifenhe in the Heilongjian Province, China has recognized the ruble and is willing to allow it to circulate freely. We note that Russians are allowed to visit Suifenhe without visas.

China is unlikely to do this unilaterally. Russia should be expected to shortly announce allowing the renminbi to trade freely in some border city. The reciprocity should, over time, generate a true market based bilateral exchange rate.

Although Nixon-Kissinger are credited with playing the China-card to squeeze the Soviet Union during the Cold War, there is arguably greater scope for cooperation between China and Russia than the other BRICs. China needs oil and gas and Russia has plenty. With Europe's slow growth and aging population and fundamental antagonism, Russia has interest in developing an Asian market for its energy products. Bilateral trade is forecast to reach $100 bln in the next couple of years.

On a different front, the Japanese government is on a bit of a diplomatic offensive as it seeks to bolster support in its confrontation with China. It not only is seeking tighter military ties with the US and Philippines, but it also is offering to guarantee Samurai bonds sold by Mongolia, a resource rich neighbor of China. Specifically a state-owned bank (Japanese Bank for International Cooperation, JBIC)) will guarantee the bonds sold by the Development Bank of Mongolia, to which Moody's assigns junk status (B1).

Separately, JBIC signed an agreement in June to provide the Mongolian government a JPY8 bln line of credit to facilitate the purchase of Japanese equipment by Mongolian companies. Other commercial efforts include Japanese companies building an airport in Mongolia's capital and a power plant in the Gobi Desert.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: China Says No To Bitcoins, But Yes To Russian Ruble